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Key challenges in implementation of Goods and Services Tax

This development is being touted as the single biggest economic reform in India since liberalization- the one that promises to change the way India does business.

November 22, 2016 / 09:12 AM IST
GST technology – The next big play

Goods & Services Tax (GST) - the much awaited constitutional amendment process is now through, paving the way for introduction of GST in India.

This development is being touted as the single biggest economic reform in India since liberalization- the one that promises to change the way India does business.

GST is expected to subsume around 17 central and state indirect taxes, boost compliance, curb tax evasion and give the much needed impetus to the Indian economy. With GST, it is believed that we are kicking off a new chapter in corporate India’s story.

While corporate India is cheering the development, the implementation of the new tax regime is being seen as a big challenge. The government has also taken cognizance of this and created a company called GST Network (GSTN) to provide the technology backbone to introduce GST and connect the databases of states and the Centre.

The government is hopeful of seeing a GST compliant India by April 2017, and corporations are scampering to understand and execute their GST infrastructure requirements in order to meet the deadline.

GST, which promises to facilitate ease of doing business in the long run, is however, a complex tax regime as far as its implementation is concerned.

The key challenges in terms of implementation can be articulated as follows:
Determination of tax -To begin with, companies will have to put a system which will facilitate determination of tax as per the new regime. This will include consideration of source and destination along with special provision for states, products and schedules.

Compliance processes – Companies will have to make sure that there are periodic updates/uploads of sales and purchase data with reconciliation for tax payments and credits.

Reporting and analysis – Companies will also have to conduct analysis on pricing, supply chain networks and costs because of tax changes.

Introduction of GST ushers in additional challenges particularly for certain industries such as financial services companies, IT companies and e-commerce companies which is summarised as follows

Bank and financial services company: as compared to current indirect tax regime, in GST determination of correct place of supply, taxability of self supplies, state-wise registrations, taxability of interest margins and security trading gains are some of the complex challenges.

IT company: Non availability of tax exemption in SEZ unit, state-wise compliances, multiple points of taxation are some of the major concerns.

E-commerce company: Tax collected at source (TCS) guidelines where payment made to supplier would be subject to TCS at the notified rate, point of taxation rules for goods etc. lays additional burden.

Another point to be considered is that while the proposed India GST laws and rules are similar to GST regimes in other countries in many aspects; the Indian GST law places an additional burden on registered businesses to routinely submit financial transaction data to GSTN and follow a reconciliation mechanism for GST filings.

Working with these requisites and challenges will be a daunting task for Corporate India.

For corporations, therefore, a robust IT infrastructure and tax technology, which takes cognizance of these conditions and offers a simplified solution will definitely form the backbone of successful and effective GST implementation.

(Vinay Sethi, Head of Market Development for Global Tax, Thomson Reuters India)
first published: Nov 21, 2016 12:47 pm
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